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Business Taxation for Expats in Australia

Submitted: April 2014

This guide covers tax issues for limited companies. For tax issues for self-employment please see: Taxation - Employment Taxation for Expats in Australia.

The Australian Tax Authority is the Australian Tax Office (ATO), their website is here.

Registration

For expats, the most common form of business structure in Australia is a proprietary limited company (company). Such a company requires a minimum of one director. Forming a company means that your liabilities are limited to the assets of the company, and any unpaid share capital. The business income is taxed at the corporate tax rate. Another possible choice is a sole proprietorship, however with these your liability extends to your own personal assets, and the business income is taxed at your individual marginal rate; which may be higher than the corporate tax rate.

There are some rules regarding what the company can be called. The rules can be checked out here. All Australian companies must be registered with the Australian Securities and Investments Commission (ASIC). This is done by completing a Form 201 (there are three versions). The forms are available here. Once you have registered, you will receive a certificate of registration, and an eight digit Australian Company Number (ACN). In addition you will also need an Australian Business Number (ABN) in order to be able obtain a Tax File Number (TFN). The TFN allows you to register for GST (if applicable) and the Pay As You Go (PAYG) system. This can all be done online at the same time here.

Corporate Tax

The Australian tax year for companies runs from 1 July to 31 June. Companies may apply to the ATO to have a different business year for accounting purposes. Australian resident companies are liable for corporate income tax on their worldwide income and capital gains. Non-resident companies are generally only liable for corporate income tax on their Australian source income and gains.

The corporate tax rate in Australia is 30% for 2013/14.

In Australia, capital gains (after adjustment for inflation) are treated as ordinary income and taxed as such. However capital losses cannot be offset against ordinary income, and vice versa.

Companies must file their Australian corporate income tax returns by 15 December for the previous tax year. Returns may be filed online via the Electronic Lodgement Service (ELS).

Corporate tax is collected under a self-assessment system. Companies are required to calculate and pay their own tax in instalments, generally either quarterly or monthly. The amount they pay is calculated by a formula based on the previous periods. There is also a final balancing tax payment (if applicable), which must be made once the actual amount due is calculated. The final payment must be paid on or before the first day of the sixth month after the end of the relevant tax year. Penalties apply for late payment of tax.

Dividends

As a director and shareholder of your new company, you might find it useful to understand the difference between franked and unfranked dividends.

Franked dividends are paid out of company income that has already been taxed. It comes to the resident shareholder with a franking credit (the tax already paid by the company) which can be used against personal income tax. Franked dividends are paid to non-residents free of withholding tax. The company can adjust the amount of franking it decides to apply to the dividends.

Unfranked dividends paid to residents are taxable as personal income. Unfranked dividends paid to non-residents are liable to withholding tax of 30%, but if a tax treaty exists with the payee country, this is generally reduced to 15%.

Companies can not only carry losses forward, but they can carry them backwards as well, though only for two years. This can alter the amount of tax payable at the company level.

Companies with very small numbers of shareholders can therefore use all these variables to issue dividends in a form that best suits the interests of the shareholders.

 

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